Scoring your Credit - How's your FICO?

Since we live in an computer-driven world, it should come as no surprise that your ability to repay your mortgage loan boils down to a single number. The years of paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

The three credit reporting agencies use slightly different formulas to build a credit score. Fair Isaac and Cooriginally developed this score. . Experian uses this model and calls its score FICO. Equifax's model, based on FICO, is called BEACON, while TransUnion, which also uses a slightly modified FICO, calls its score EMPIRICA. While these methods vary from one agency to another, each agency uses the following to determine your score:

  • Your Credit History - How long have you had credit?
  • History of Payments - Do you have a history of late payments?
  • Balances on your Credit Cards - How many accounts do you hold, and how much do you owe?
  • Inquiries on Your Credit - How many times have you had your credit checked for a loan?

These factors are assigned weights based on the formula being used. Each formula produces a single number which may vary a a little by agency. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers in the current environment have a score above 620.

Your FICO score affects your interest rate

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.

Can I raise my credit score?

What can you do to improve your FICO score? Unfortunately, not much. Because the FICO score is based on your lifelong credit history, it's hard to make a significant improvement in the score with quick fixes. (Of course you must remove incorrect data on your credit report.)

How do I find out my credit score?

Before you can improve your score, you must know your score and make certain that the credit reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score as well as reports from all three credit reporting agencies. Also available are information and tools that help you improve your FICO score.

You can get a free credit report once per year from the three major credit reporting agencies by visiting AnnualCreditReport.com. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.

Armed with this information, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Want to know more about your credit score? Call us: (203) 729-6681.

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